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Canada's credit situation has assumed a split personality – the debt loads of consumers and businesses are headed in opposite directions. But as households slow their debt accumulation while businesses ramp up their borrowing, this is a divergence that might suit Canada's current economic needs just fine.

According to the latest credit data from the Bank of Canada, total household debt in Canada was up 4.2 per cent in May from a year earlier – the fourth straight month at that level. Indeed, the annual pace of household debt growth has been hovering around 4 per cent, the bottom of its long-term historical range, for a year now.

Year-over-year growth in mortgage credit, at 5.1 per cent, is near its lowest levels since 2001. Growth in consumer credit – credit cards, personal lines of credit and consumer loans – rebounded slightly in May to 2.2 per cent, but is still tracking near the bottom of its 20-year range. Pretty much any way you slice it, household debt growth has stabilized, at about as slow a pace as we're likely to get.

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That's certainly encouraging in terms of the nagging risks to Canada's financial stability that excess household debt poses – an issue over which regulators and policy makers of various stripes in Ottawa have long fretted. While no one is ready to declare the threat over, it is certainly fading. Moody's Analytics economist David Rosenblum noted this week that household assets are now growing at 8 per cent year over year – nearly double the pace of debts. That trend surely is putting Canadian household balance sheets on more stable footing in the event of a rapid surge in interest rates – something that, it should be said, looks extremely unlikely anyway.

But a slowdown in consumer credit growth to historic lows does pose a downside to the economy – it implies slower growth in consumption, and is thus a serious headwind for economic expansion in the current cycle. Fortuitous, then, that Corporate Canada looks to be stepping in to fill this economic void – and then some.

The Bank of Canada data show that business credit was up 8.3 per cent in May from a year earlier, its fastest growth since the pre-recession days of early 2008. And the pace of corporate borrowing has been accelerating rapidly: Over the past three months, the annualized growth rate was 10.6 per cent, more than double the pace of the same period a year ago and the fastest three-month trend in seven years. While consumer credit has added a modest $11-billion over the past 12 months, business credit has expanded by $121.6-billion.

It's a little unclear what companies are planning to do with their expanded credit – though one obvious use would be to finance that long-awaited expansion in capital investment, something the Bank of Canada has often cited as a crucial missing ingredient in Canada's economic recovery. The historical data suggests that this magnitude of business-credit growth is often associated with acceleration of business capital formation, but not always.

It could be that corporate Canada is taking advantage of historically low interest rates and their improved balance sheets to build up a war chest for investment opportunities down the road, but will still wait for more definitive signs of sustained strength in demand before investing more heavily in expansion. Nevertheless, the recent trend in borrowing shows they are gathering a lot of economic fuel; where there's smoke, there will inevitably be fire, sooner or later.

Putting these two opposite trends together, we're seeing more light at the end of two key tunnels for Canada's economy. And for them to be developing at the same time, to nicely offset each other, could prove a very handy bit of timing.

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